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California’s Progressive Electricity Rates: A Novel Approach to Redistributing Wealth

Camarda Wealth Advisory Group

In 2022, Democrats in Sacramento passed groundbreaking legislation that is reshaping California’s taxation landscape. This legislation introduced a second progressive income tax within the state, but through a unique avenue: restructuring electricity rates.

By enlisting the Public Utilities Commission (PUC), the legislation mandated the imposition of a fixed charge on a graduated income basis. The primary objective was twofold: to alleviate the burden of skyrocketing electricity rates on lower-income households while redistributing utility costs to higher earners.

Over the past decade, average residential rates for investor-owned utility customers in California have witnessed a staggering surge, ranging between 72% to 127%. Customers face fixed fees ranging from $15 per month for earners under $28,000 yearly to $92 per month for those with incomes over $180,000. The root causes of this predicament are multifaceted. The state’s ambitious green-energy initiatives have contributed significantly. Additionally, the net-metering program, designed to incentivize solar panel adoption, has burdened non-solar households with maintenance costs for the grid.

The state has mandated utility providers to extend discounts to lower-income customers, effectively embedding these concessions into progressively higher rates for higher-income consumers.

While the bill garnered overwhelming support upon passage, Democrats representing affluent constituencies are now confronting backlash from constituents apprehensive about further escalations in their electricity bills. As utility costs escalate, income-based charges for higher earners are poised to correspondingly rise, underscoring the dynamic nature of the proposed taxation paradigm shift.

This move by California is part of a broader trend in blue states, exploring innovative ways to redistribute wealth through alternative income taxes and true wealth taxes. Wealth holders should be aware of this as it is just the tip of the iceberg.

As California pioneers this unique approach to taxation, it remains to be seen how effective it will be in achieving its intended goals. The impact on households of different income levels and the overall redistribution of wealth will be closely monitored. The success or failure of this experiment may influence future policy decisions in other states.

While the approach may face criticism and resistance, it underscores the ongoing efforts to find innovative solutions to pressing societal issues.

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